Still Water Runs Deep and ……..?

May 21, 2014

That’s the way I’d describe what is transpiring in this market  ( January 1 ,2014 till May 20 close )  Still water and ideal for saltwater Crocs.

Forgetting the risk(s) associated with individual stocks and focusing entirely on market risk, holders of ETF market index baskets  have seen the following progress since January 1: DOW – 1.2%,   S&P 500 index +1.3%, NASDAQ -1.9%.  On the other hand, those who invested in the fixed income ETF…..I shares / Barclays 7 – 10 year US Treasury notes ” IEF ” have enjoyed a market gain of 4.4% not considering a 1.9% per annum dividend.  A shift.

On top of this, I have noticed that the equity market’s engine…volume…has been far, far less than what I would describe as ” robust “,  giving rise to my suspicion that money is leaving the equity market and flowing….?  Money flow analysis  aims to track this as a momentum indicator that uses price and volume to PREDICT trend.  This is done  by comparing positive money flow versus negative money flow..  It is described as a more rigid indicator than Relative Strength because it is volume weighted.

I don’t do this type of formula driven analysis..  I track about 50 stocks each night for price / volume and then look for follow  through in subsequent days.  This gives me a sense of thrust or no thrust.  I act on a reasonable suspicion that thrust has left the market.  Over the past week, I have gradually decreased my market exposure to 20%  ( SPY, VTI, RSP, RPG ) with 60% in fixed income ETFs ( BOND, HYS, VCIT, LQD, HYG, JNK ) with 20% in CASH.

I believe that in terms of price and volume, this market would qualify as being ” dull “.  The common phrase when dealing with a dull market is ” Never short a dull market ”  Some believe dull markets indicate that energy is being stored for a rally……Really ?  Since my number 1 rule is to preserve capital, I’d say it would be reckless of me to assume that the energy being stored is for a trip north rather than a trip south.

That’s what makes me a trend FOLLOWER rather than a trend PREDICTOR… I’d rather give up some profit before jumping aboard .  My goal is to hop aboard BEFORE the train reaches full speed  and AFTER I know its direction is north rather than south.

Richard Maurice Gore

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